Friday, December 15, 2006

Where White Collar Criminals Wind Up

The past year has seen the imprisonment of a number of high-profile white collar defendants, including former CEOs like Jeffrey Skilling and Bernie Ebbers, and former political heavyweights like Representative Randy "Duke" Cunningham and Jack Abramoff.  The prison terms they and others received has increased the awareness of what a change prison life is for white collar defendants.  There is an interesting article from the New York Law Journal (available on Law.Com here) about the process for securing a favorable prison environment for the federal white collar defendant who has been convicted (either after trial or by plea) and faces a prison term.  Life in the federal prison system is a world apart from the corporate world, and the author, JaneAnne Murray, makes the point that prison is a dehumanizing experience, which may be the greatest shock to the prisoner who has never seen the inside of a jail except perhaps briefly on the day the person was arraigned.   The article concludes:

For many prison inmates, the quality of the time they serve is as important as the length of the sentence. Time will certainly pass faster for most, for example, if one is in the relatively freer and less volatile environment of a camp facility. Thus, in federal criminal cases, once the client has pleaded guilty or has been convicted after trial, it is in the client's interest for the defense lawyer to adopt the dual strategy of mitigating the sentencing exposure and simultaneously positioning the client for a favorable prison placement. This is true even if the likelihood of incarceration appears to be remote. Once a prison sentence has been pronounced, it is often too late to take the measures that can make that sentence more palatable.

(ph)

December 15, 2006 in Sentencing | Permalink | Comments (0) | TrackBack (0)

First Foreign Economic Espionage Act Convictions

The U.S Attorney's Office for the Northern District of California announced the first two convictions under 18 U.S.C. Sec.1831 for foreign economic espionage in a case that began with an arrest back in 2001.  According to a press release (here):

Fei Ye and Ming Zhong pleaded guilty today to two counts each of economic espionage. Ming and Zhong were arrested at the San Francisco International Airport on November 23, 2001, with stolen trade secret information in their luggage while attempting to board an aircraft bound for China. The defendants today admitted to possessing stolen trade secrets from Sun Microsystems, Inc. and Transmeta Corporation with the intent to benefit the Peoples Republic of China.

Mr. Ye and Mr. Zhong today admitted that they intended to utilize the trade secrets in designing a computer microprocessor that was to be manufactured and marketed by a company that they had established, known as Supervision, Inc. In pleading guilty, Mr. Ye and Mr. Zhong admitted that Supervision was to have provided a share of any profits made on sales of chips to the City of Hangzhou and the Province of Zhejiang in China, from which Supervision was to receive funding. Mr. Ye and Mr. Zhong further admitted that their company had applied for funding from the National High Technology Research and Development Program of China, commonly known as the “863 Program.”

Federal prosecutors in the Northern District of California also announced a superseding indictment in another Sec. 1831 case.  According to a press release (here), the defendant was "charged with stealing military combat and commercial simulation software and other materials from his former employer Quantum3D, a company based in San Jose, California. The economic espionage charges allege that Meng, formerly a resident of Beijing, China, and a resident of Cupertino, California, stole the trade secrets from Quantum3D with the intent that they would be used to benefit the foreign governments of China, Thailand, and Malaysia." (ph)

December 15, 2006 in International, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 13, 2006

Protecting the Privilege and the Issue of Remedy-Part II

Focusing on Four Things -

1. In analyzing the McNulty Memo, there are several interesting points to note within the initial parts of the document.  In going from the Holder Memo to the Thompson Memo, Larry Thompson outlined in the initial paragraphs the main reason for revisions - "increased emphasis on and scrutiny of the authenticity of a corporation's cooperation."  He also noted that "[f]urther experience with these principles may lead to additional adjustments."  These lines are omitted in the McNulty Memo.  In its place one finds some interesting language that demonstrates the motivation of DOJ in presenting this revised memo.  For example, in Part I of the Memo there are several references to "perception."  Clearly the DOJ has been bombarded with criticisms for its actions regarding attorney-client privilege waivers.  This recognition of how their actions "impact[] public perception" is noteworthy.  This very long new Memo by DOJ, with clear emphasis on combating corporate crime, is clearly an attempt to keep as much as possible of existing rules in place, but also change the perception of the DOJ from being called the ones who are destroying the attorney-client privilege to the ones who are fighting corporate crime.

2. The problem with the DOJ categorization of materials, is that we see an executive agency legislating.  They are creating rules that they can or cannot follow in their deciding when to violate the longstanding attorney-client privilege.  The most important aspect here is that they are not only the ones who are deciding what the rules will be, but also how they will be interpreted, and what happens if they are not followed. 

3. In Part II of the Memo it states - "an indictment often provides a unique opportunity for deterrence on a massive scale.  In addition, a corporate indictment may result in specific deterrence by changing the culture of the indicted corporation and the behavior of its employees." 

Since when is deterrence supposed to be forthcoming from an indictment?  Shouldn't we have a trial first? And more importantly, shouldn't we first have a conviction? 

4.  So why does the Specter legislation provide a better alternative?  The main reason is that it keeps within the executive branch - the executive functions.  It allows the judiciary to provide the proper oversight and thus promotes a system with proper checks and balances.

5.  Finally, back to the discussion with my co-blogger.  The Specter bill does not explicitly have language for a remedy when there is a violation.  This is no different from the McDade Amendment. A remedy was unnecessary there, as none is necessary here. Judges need to have discretion to provide for an appropriate remedy depending upon the circumstances.  Judges, through caselaw, will interpret the statute to let prosecutors know what is proper and what is not.  Who knows, maybe they will have a Leon type of an exception that allows the conduct to stand when the prosecutor acts in good faith.

(esp)

December 13, 2006 in Defense Counsel, Legal Ethics, Privileges, Prosecutors | Permalink | Comments (0) | TrackBack (0)

House Subcommittee Asks About H-P CEO's Stock Sales

While the Hewlett-Packard pretexting imbroglio has faded from view, a House Subcommittee decided to pepper company CEO Mark Hurd with an inquiry about his exercise of options on 100,000 shares of stock and immediate sale on the day he was interviewed in August 2006 as part of the company's internal investigation.  The Subcommittee letter is signed by Representatives John Dingell, the incoming chair of the Energy and Commerce Committee, and Bart Stupak, the likely new chair of the Oversight and Investigations Subcommittee that has already been looking at the pretexting.  Hurd sold the shares on August 26, 2006, the same day H-P's then-outside counsel, Wilson Sonsini, interviewed him about his role in the investigation of boardroom leaks that included the pretexting that caused such a public relations disaster. 

The Congressmen asked whether Hurd's sale was a species of "bullet dodging" in which a corporate insider sells shares ahead of the disclosure of negative news that will cause the stock price to go down.  In addition, they asked Hurd whether any other executives sold at this time.  It's not a hard question to answer on your own by looking at the company's public records.  A quick check of H-P's Form 4s (which report stock sales by executives and directors) shows one example (here) in which board member Lucille Salhany sold over 18,500 shares on August 24.  Ms. Salhany is a member of the audit committee and was likely aware of the Wilson Sonsini investigation, although that's a guess based on her committee membership.  The timing of the trade does not mean the person sold shares because of the internal investigation, and there are many reasons for these transaction. 

Hurd's Form 4 (here) shows that he received the options on April 1, 2006, at an exercise price of $21.73, and he sold the shares for about $35.40, for a profit of approximately $1.35 million (not counting brokerage costs, which are usually fairly low).  While the sale may look bad, it may be that Hurd did not exactly dodge a bullet, but instead took a bit of one.  The announcement of the pretexting that was part of the leak investigation triggered a firestorm of criticism, but had little if any effect on the stock price in the short term.  Moreover, since late September, when the Subcommittee held a hearing on the pretexting at which Hurd testified, the price has gone up almost $2 per share.  Hurd sold a few months too early, and if he'd waited until now he would have reaped another $450,000 based on the December 13 closing price of $39.83.  Hurd still has options on another 600,000 shares, so no tears need be shed over his sale.  While the timing looks suspicious, I doubt there's anything there for the Representatives to get too worked up about. (ph)

Download hurd_house_subcommittee_letter_dec_12_2006.pdf

December 13, 2006 in Investigations | Permalink | Comments (0) | TrackBack (0)

Court Rejects New Trial Motion of Scrushy and Siegelman

Chief U.S. District Judge Mark Fuller rejected the new trial motion of former HealthSouth CEO Richard Scrushy and former Alabama Governor Don Siegelman after their convictions on corruption charges.  The defendants sought the new trial on grounds of juror misconduct, specifically related to outside evidence in the jury room and improper deliberations.  The opinion (available below) found that two jurors did bring in evidence not admitted at trial during the deliberations, but concluded that the defendants were not prejudiced.  The jury foreman looked up on the internet the instructions for people serving in that role, and the foreman and another juror downloaded a copy of the indictment from a District Court website that had language the court had stricken from the official indictment supplied to the jury.  The court noted that the first type of information was unrelated to the deliberations, and the jury instructions to consider the indictment only as an accusation meant that the unauthorized version likely had no effect on the jury's decision.  The court also rejected a set of e-mails supplied by the defendants allegedly showing that some jurors discussed the case outside the jury room because they could not be authenticated.

Although the jury misconduct issue is out of the way, the district court still has not addressed a defense challenge to the racial composition of the jury pool, that African-Americans were improperly excluded and therefore a new trial with a jury drawn from a properly chosen venire is required.  Until Judge Fuller rules on that issue, a sentencing date will not be set.  Look for the case to drag on even longer before it finally heads to the Eleventh Circuit, where the jury issues, among others, will be fought out again. (ph)

Download scrushy_siegelman_opinion_dec_2006.pdf

December 13, 2006 in Corruption, Judicial Opinions, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Is David Stockman Headed Back to the Woodshed?

Former political wunderkind David Stockman was famously taken to the woodshed by President Reagan for his comments about the administration's tax and budget cuts when Stockman was head of the Office of Management and Budget.  He may be headed back there, according to a report in the Detroit News (here) that a federal grand jury in New York is looking at whether he managed earnings through accounting gimmicks and made misleading statements about Collins & Aikman Corp. in 2005 when he was CEO of the company.  After leaving the White House in 1985, Stockman moved to the world of finance, and in 2001 acquired control of various auto parts companies, rolling many of them into C&A, which entered bankruptcy in May 2005.  The board ousted him a few days before filing bankruptcy, and in the months before the filing Stockman made optimistic statements about C&A's prospects.  In addition to the criminal probe, the SEC sent Stockman a Wells Notice that the Enforcement Division staff intends to recommend the filing of a securities fraud action against him.  It sounds like the government is preparing a coordinated criminal-civil case against Stockman, and perhaps other former C&A executives. (ph)

December 13, 2006 in Fraud, Grand Jury, Investigations | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 12, 2006

Protecting the Privilege and the Issue of Remedy

The Department of Justice's latest guidance on prosecuting corporations, the newly-christened McNulty Memo, tries to assuage some of the concerns of corporations and various interest groups about the frequency with which federal prosecutors can request waiver's of the privilege.  This latest iteration of the Department's policy is now even more complex than its predecessors, the Thompson and Holder Memos, by creating categories of privileged material and work product.  On this blog, we will discuss various issues related to this new approach, but it remains an open question whether Congress will intervene and set the policy through the legislation that Senator Arlen Specter will introduce in the new Congress in January.  As discussed in an earlier post (here), this legislation would prevent federal prosecutors from seeking a privilege waiver in any circumstances, along with other prohibitions.  These are the two approaches, one legislative and one an internal guideline, that raise a number of interesting questions we plan to discuss here.  The first issue we will talk about is whether there should be some enforcement mechanism along with the restrictions on requesting waivers,and the related question of the proper remedy for a violation.

Peter Henning: One significant weakness with the McNulty Memo appears in its name -- it is only an internal policy statement with no means to enforce its provisions except what the Department chooses to provide.  While the Office of Professional Responsibility could investigate a complaint, the McNulty Memo has a hortatory value but not much else if there is a violation of its restrictions on privilege requests.  The U.S. Attorney's Manual is quite explicit in its first provision that it "provides only internal Department of Justice guidance. It is not intended to, does not, and may not be relied upon to create any rights, substantive or procedural, enforceable at law by any party in any matter civil or criminal. Nor are any limitations hereby placed on otherwise lawful litigative prerogatives of the Department of Justice."  USAM 1-1.100.  The McNulty Memo will take the place of the Thompson Memo in the Manual, and be subject to the same limitation on its enforceability, or even usefulness outside of an internal Department investigation.

The "Attorney-Client Privilege Protection Act of 2006" that Senator Specter will introduce (I'm hopeful with "2007" at the end) in the next Congress similarly does not contain any enforcement mechanism or reference to what remedy might be available (or to whom) in case of a violation.  One can argue that not including a remedial provision is a benefit because it creates maximum judicial discretion, but that can also lead to substantial inconsistency.  More importantly, a crucial issue involved in the proposed legislation is identifying the goal Congress would hope to achieve if it enacts the bill.  If the purpose is to eliminate what Congress views as prosecutorial misconduct, then providing a remedy against the prosecutor without directly interfering in the underlying investigation or prosecution would be a good approach.  The focus of Senator Specter's bill is on the request for a waiver and the decision whether to institute charges, and not as much with providing that information.  The bill acknowledges that a corporation can voluntarily waive its privilege and work product protection, so I think the focus is on the prosecutor and not simply protecting information. 

I would be surprised if a federal prosecutor made a request that arguably violated the bill and was not immediately the subject of a protest to the U.S. Attorney, Main Justice, and the courts about the legal violation.  I think it is unlikely that a company would provide privileged information and protected work product and then later come to the realization that the request violated the Attorney-Client Privilege Protection Act.  The question, then, is if the primary concern is prosecutorial misconduct, can a remedial provision be attached to the bill that would fulfill that purpose? 

One area that has some similarity to this issue is Federal Rule of Criminal Procedure 6(e)'s provision for pursuing violations of the grand jury secrecy requirement.  Rule 6(e)(7) provides: "A knowing violation of Rule 6, or of guidelines jointly issued by the Attorney General and the Director of National Intelligence pursuant to Rule 6, may be punished as a contempt of court."  This provision concerns prosecutorial misconduct, and permits a direct punishment of the government attorney for a violation.  Moreover, the provision requires proof of knowledge, and provides that a violation "may be punished."  These limitations give the courts flexibility to find that a de minimis or technical violation does not merit contempt, while a serious transgression could even be punished with a fine or jail sentence.  This strikes me as a workable provision under Senator Specter's legislation, and could be added quite easily as a single sentence amendment.

One possible objection is that such a provision only addresses the prosecutor's conduct but not the effect on the investigation.  To address that issue, a provision similar to Federal Rule of Criminal Procedure 41(g) could be added.  That Rule provides, "A person aggrieved by an unlawful search and seizure of property or by the deprivation of property may move for the property’s return."  Similarly, language could be added so that a company aggrieved by a violation of the act could move for the return of documents and a restoration of the privilege and work product protection for any information it was compelled to turn over in violation of the law.  If the case ever came to trial, a court could ensure that the government did not use privileged information, something every trial just is empowered to do already.   

If the goal of the bill is to give corporations, and perhaps their employees, a means to block an investigation or have an indictment dismissed, then leaving judges the widest discretion may be the way to achieve that purpose.  The discussion about the legislation has been focused on the need to protect the privilege, and I think there are some fairly simple procedural mechanisms to punish prosecutorial misconduct and restore privileged communications and work product to their prior state that can give the courts real guidance on how to proceed in cases that arise five and ten years down the line.  Enacting a law prohibiting conduct without any direction on how it should be applied creates significant uncertainty that may result in inconsistent results.  If the legislation does create (or restore) an important right, then it should have a remedy. (ph)

                                                                                                                                              

Ellen S. Podgor -  Although I agree with many of the points made by my co-blogger, there are several aspects that we do part ways. So stay tuned to a forthcoming entry that will discuss another approach. It will specifically look at why it is important to provide judges with flexibility in fixing a remedy for a violation, why existing statutes of a similar nature mirror this approach, and why the focus of Senator Specter's bill is on the information, more specifically on protecting a privilege that is at the bedrock of our adversarial system. (esp)

December 12, 2006 in Legal Ethics, Privileges, Prosecutors | Permalink | Comments (0) | TrackBack (1)

Leak Investigations

Recent leaks in corruption cases have become a focus of an FBI investigation. (see here) FBI Director Robert Mueller should be congratulated for this move as leaks can seriously impair the ability of an individual from getting a fair trial.  It is even more problematic when the leak involves material being presented to a grand jury that is subject to secrecy under Rule 6(e).

(esp)

December 12, 2006 in Prosecutions | Permalink | Comments (0) | TrackBack (0)

Get Out the Winter Coat - Mr. Skilling

It did not take very long for the Fifth Circuit to rule on whether Jeff Skilling could remain free pending his appeal.  The answer was plain and simple - No.  (See here and here)

(esp)

December 12, 2006 in Enron, Sentencing | Permalink | Comments (0) | TrackBack (0)

The McNulty Memo - Attorney-Client Privilege Waivers & Attorney Fees

It looks like DOJ has decided to try and save itself from legislation (here) concerning the attorney-client privilege waivers, by issuing a revision to the Thompson Memo.  DOJ issued a press release that tells of Paul McNulty's talk to Lawyers for Civil Justice in New York.  The new McNulty Memo and an Executive Summary are below.  The press release states in part:

"The new guidance requires that prosecutors must first establish a legitimate need for privileged information, and that they must then seek approval before they can request it. When federal prosecutors seek privileged attorney-client communications or legal advice from a company, the U.S. Attorney must obtain written approval from the Deputy Attorney General. When prosecutors seek privileged factual information from a company, such as facts uncovered in a company’s internal investigation of corporate misconduct, prosecutors must seek the approval of their U.S. Attorney. The U.S. Attorney must then consult with the Assistant Attorney General of the Criminal Division before approving these requests.

"The guidance cautions prosecutors that attorney-client communications should be sought only in rare circumstances. If a corporation chooses not to provide attorney-client communications after the government makes the request, prosecutors are directed not to consider that declination against the corporation in their charging decisions. Prosecutors are told to request factual information first and make sure they can establish a legitimate need to go further before requesting a waiver of privilege to obtain attorney-client communication or legal advice.

"The new memorandum also instructs prosecutors that they cannot consider a corporation’s advancement of attorneys’ fees to employees when making a charging decision. A rare exception is created for those extraordinary instances where the advancement of fees, combined with other significant facts, shows that it was intended to impede the government’s investigation. In those limited circumstances, fee advancement may be considered only if it is authorized by the Deputy Attorney General."

It is certainly wonderful to see the DOJ realizing the importance of the right to counsel, and how asking for a waiver of attorney fees can be problematic to making certain that the accused has appropriate legal counsel. In light of the Stein case, this is certainly a step in the correct direction.

But with regard to the attorney-client privilege, the new McNulty Memo does not go far enough.  For one, it is commonly known that DOJ guidelines are nothing more than internal guidelines that are unenforceable at law.  So if an AUSA fails to follow this guideline, and forgets to seek approval before requesting a waiver, there is nothing that the accused can do in response.  This is exactly why, Specter's legislation is needed.  As long as the possibility exists that DOJ will allow someone to ask for a waiver of the attorney-client privilege, the privilege is in jeopardy. 

What is not mentioned here is that DOJ always has the right to secure a waiver with a court through the crime-fraud exception.  It is sad that this new Memo tries to bypass judicial review by having the DOJ do internally what is clearly against the long standing privilege.

On the bright side - Larry Thompson is probably happy to see a new name on this memo.

(esp)

Download mcnulty_memo.pdf

Download mcnulty_memo_executive_summary.pdf

December 12, 2006 in Legal Ethics, Privileges | Permalink | Comments (0) | TrackBack (3)

Monday, December 11, 2006

When Will Skilling Need A Winter Coat?

Today was the day for Jeffrey Skilling to report to prison.  And the 24+ prison term was to be served near Minneapolis (see here).  But he can keep the winter coat in storage a little longer as the Fifth Circuit Court of Appeals has decided to stay his reporting to prison pending its ruling on bail during the appeal (see here).

(esp)

December 11, 2006 in Sentencing | Permalink | Comments (0) | TrackBack (2)

Alaskan House of Rep Member Indicted by Feds

The Department of Justice issued a press release on its recent indictment of an Alaskan State Representative. The seven count indictment charges "extortion, conspiracy, bribery, and money laundering."  It alleges that, "Anderson and Lobbyist A participated in the creation of a sham corporation to conceal the existence and true origin of the payments, and used the sham corporation to funnel a portion of the $26,000 to Anderson."  The press release also notes that "according to the indictment, the FBI confidential source was a consultant for a private corrections company located outside the state of Alaska, and Anderson and Lobbyist A initiated contact with the FBI confidential source in order to solicit bribery payments."

(esp)

December 11, 2006 in Corruption, Prosecutions | Permalink | Comments (0) | TrackBack (0)

How Much Is An "A" Worth?

According to CNN.com (AP) a Queens DA has filed charges against a college instructor for allegedly taking  "cash and wine" to change grades.  The instructor is also accused of telling a student to lie before a grand jury. The charges include "computer tampering and forgery." All of the charges are denied by the accused.

What is particularly good to see in this case is that the prosecution is not being advanced by federal authorities. Because of overcriminalization, federal prosecutors often have the discretion to proceed on a wide variety of cases. 

(esp) (w/ a hat tip to Dean Darby Dickerson) 

December 11, 2006 in Fraud, Prosecutions | Permalink | Comments (1) | TrackBack (0)

Public Corruption is "in"

Public corruption appears to be a new top priority of DOJ and the FBI. (see here)  Often, however, the sentences issued for public corruption crimes are lower when compared with the sentences issued for fraud cases.  This is in large part because fraud cases have "loss" figures attached to them, and these amounts often increase a sentence. But not everyone is convinced that this should be the appropriate priority.  In a quote in a Washington Post article (in TBO), Senator Dianne Feinstein expresses a view that violent crimes need to be given a higher priority.  One form of crime that goes unmentioned is identity theft.  In this technology age, more attention needs to be given to crimes related to the Internet.

(esp)

December 11, 2006 in Corruption | Permalink | Comments (0) | TrackBack (0)

Sunday, December 10, 2006

Hopscotching Across the USA

Once a defendant enters the prison system, the system takes over.  Where they land can be a function of many factors.  Often unnoticed, however, is how long it may take until they get there and where they may stop along the way. Many white collar offenders are fortunate in that they may be allowed to report directly to the final destination.  But not all are given this luxury. Take Jamie Olis, for instance - he is spending his third bithday in prison today - and so far he has seen the insides of FCI in Bastro, Tx., then the FCI in Oakdale, Louisiana and then onto Houston's Federal Dentention Center. As Tom Kickendall's Houston Clear Thinkers states here, "Olis has now endured almost a year in his cramped Detention Center cell and still has not been assigned to a prison unit to serve the balance of his sentence. This despite the fact that he was resentenced three months ago and a number of federal criminal defendants sentenced after Olis -- including Skilling, Fastow and Causey -- have already been assigned to the prisons where they will serve their sentences."

(esp)

December 10, 2006 in Sentencing | Permalink | Comments (0) | TrackBack (0)

Bribery Investigation Doesn't Hurt Election Result

Despite a bribery investigation, Representative William Jefferson was re-elected in Saturday's runoff election. According to AP here, the government investigation may have aided Jefferson -- with voters very determined to protect their Louisiana Representative. For background on this investigation, see here, here, and here.

(esp)

December 10, 2006 in News | Permalink | Comments (0) | TrackBack (0)

Cooperation Won't Necessarily Save a Company

Incredible story in Sunday's NYTimes here on how one company, RentWay made the decision to fully cooperate with the government following discovery of an accounting fraud. The bottom line is that it may have kept the company from being prosecuted criminally and also the main executive who cooperated who was unaware of the fraudulent activity occurring within the company.  But the company suffered from trouble within its midst.  The best lesson that can be learned from this story, is the importance of having good solid controls in place to detect fraud within one's midst.  Having a proper corporate compliance program may assist to avoid the sad consequences of the innocent CEO who detects the fraud and has to deal with how best to handle the matter. 

(esp)(w/ a hat tip to John Wesley Hall)

December 10, 2006 in Fraud | Permalink | Comments (0) | TrackBack (0)

Saturday, December 9, 2006

Response on Attorney-Client Privilege

Senator Specter's bill on attorney-client privilege is certainly receiving some commentary on this blog - here and here.  And although my co-blogger and I agree on most items, this topic is one that I feel compelled to respond to his comments here.

1. This bill will survive - I disagree that this bill will be lost in oblivion (although my co-blogger does not expressly state this and this is my interpretation of the commentary that states that the session is ending and Specter will no longer be chair of the Senate Judiciary Committee).   The coalition backing this bill is like none other seen before. It crosses both political and ideological boundaries.  It includes the ABA, the National Association of Criminal Defense Lawyers (NACDL), Edwin Meese, Richard Thornburgh, some associated with the CATO Institute,  the U.S. Chamber of Commerce and the National Association of Manufacturers (see here and here) as well as others. (some citations from Alan Childress' Legal Profession Blog here)  The bottom line is that Sen. Specter will be proceeding ahead on this one in the next session.  Why?  Because the DOJ has done nothing to correct this situation and the political change in legislature is not likely to influence the strong support that this bill will receive.

2. What's the procedure?  Mr co-blogger questions the lack of guidance offered by the bill on what a court should do if there is a question of a violation.  Yes, what if a prosecutor decides to violate this law by improperly requesting attorney-client privileged material?  It is true that a remedy is not included here, but it is also good that none is stated.  It would be a shame to stifle the judiciary in finding an appropriate remedy to fit the particular circumstances.  Obviously if the circumstances warrant dismissal then that is what should occur, and the government may be seeking review in a higher tribunal. But often, such an extreme remedy would not be necessary and the court needs to have the flexibility to either exclude evidence or preclude its use in further proceeding.  Is this not done in cases of a violation of immunity, so why can't it be done here (see the Hubbell case).

3. What's the standard?  Clearly if there is an alleged violation, then the government has the burden to show otherwise.  Does this need to be stated in the legislation?  No, it usually isn't in federal legislation of this nature, and is certainly presumed in light of the fact that the legislation calls for prosecutors not to be asking for the attorney-client privilege waivers. 

4. What's the remedy? See # 2 above. And more importantly, if prosecutors follow the law then a remedy won't be needed.

5. Will this legislation encourage corporations to act unscrupulously?   Absolutely not.  The scenario presented by my co-blogger is one of obstruction of justice.  This is not a pre-arranged contractual relationship that is being voided by the government through its asking of a waiver of an attorney-client privilege.  Just like individuals have a right to assert a 5th Amendment privilege - a corporate executive instructing a lower level employee that they have to assert the privilege raises issues of undue influence that may trigger the obstruction statutes. It is also important to mention that nothing in the statute precludes prosecutors from securing needed information by going to a judge and presenting evidence of the existence of a crime or fraud.  The crime-fraud exception is not eradicated by this statute.

6. Could there be a constitutional problem? This same issue was raised pre-the-McDade Amendment by prosecutors who argued that the judiciary could not usurp the legislative role.  Congress stepped in with legislation to preclude prosecutors from acting unethically in court. And the legislation passed and remains valid today. It is no different here.  Prosecutor's via this proposed legislation are being given a rule as to what will be allowed in their investigation of criminal matters. This is clearly within the legislative function.

This bill is clearly one that aims toward returning our system to one that honors, as opposed to ignores, the attorney-client privilege.  It is unfortunate that DOJ failed to get its act together timely to rewrite the Thompson Memo so that it omits this language. And perhaps realizing that the Specter bill is hanging over its head, such a move will now be forthcoming. But if forced to proceed with this legislation because of DOJ inaction, it is important for this legislation to permit judges to be judges and find appropriate remedies to fit the situation.  A one-size-fits-all remedy in a statute will preclude the judiciary from tailoring the remedy to fit the particular unethical circumstances of the rogue prosecutor. 

(esp)(w/disclosure that she serves on the board of directors of the NACDL).

December 9, 2006 in Defense Counsel, Legal Ethics, Privileges | Permalink | Comments (0) | TrackBack (0)

What Does the Attorney-Client Protection Act of 2006 Do?

Senator Arlen Specter's legislative proposal, The Attorney-Client Protection Act of 2006 (here), would roll back portions of the Thompson Memo on the considerations that go into deciding whether to prosecute a corporation, if Congress enacts it.  The legislation may go beyond just organizations by protecting "any communication" covered by the attorney-client privilege and not just those of a corporation.  Perhaps more importantly, while the title refers to the privilege and includes the work product protection, it also extends to prohibiting consideration of a company's decision to pay the attorney's fees of an employee under investigation, entering into a joint defense agreement with employees, and refusing to terminate a person's employment if the employee does not cooperate in an investigation.  This language has little to do with the privilege directly, and largely tracks the ABA's criticism of the Thompson Memo adopted this past August.  It also reaches beyond just criminal prosecutions by covering civil enforcement actions, which means the SEC, FTC, and OIGs, among others, that pursue civil actions would also be governed by the legislation.

The proposal is certainly interesting, and addresses problems that have developed since the adoption of the Thompson Memo and its predecessor, the Holder Memo.  Nevertheless, the bill will not go anywhere in the current Congress because the session is over and a bill will have to be introduced in the 110th Congress that convenes in January, when Senator Specter will no longer chair the Judiciary Committee.  In analyzing the legislation, some issues that may be worth thinking about include:

  1. What's the procedure?  While the proposal says that in a civil or criminal investigation the government shall not "demand, request, or condition treatment" of an organization on its decision to waive the privilege, pay an employee's attorney's fees, etc., it does not say what will happen if someone alleges a violation of the law.  Who can challenge the government if there is a belief that such a "demand, request or condition" has occurred?  Most likely the corporation can raise the issue because that's whose rights are being protected, but could an individual investigative target, such as an employee, bring a challenge?  If so, and particularly if this is during the pre-indictment phase of an investigation, there may be substantial grand jury secrecy issues if discovery were permitted.  A procedure similar to raising a Rule 6(e)(7) contempt challenge to improper disclosure of grand jury information might be used, but the law says nothing about what a court is supposed to do, so some guidance may be helpful.
  2. What's the standard?  Imagine this scenario, unlikely as it might be: an attorney whose corporate client is under investigation meets with the prosecutor and states that the company will pay all attorney's fees and will not waive any privilege, and that if the company is indicted then that decision will be challenged because the decision must have been affected by the company's posture on these issues.  If an indictment takes place, will there be a hearing on the company's challenge at which it can take discovery of the government's decision-making process?  If so, who bears the burden of production and persuasion, and can a court grant discovery on the issue?  Mini-trials are not welcomed in criminal cases, and there would be issues whether the propriety of the charges could be considered by a court hearing a challenge.  The Supreme Court has been reluctant to permit discovery of the exercise of prosecutorial discretion, and this legislation goes to those charging decisions, so this is another issue that should at least be considered.   
  3. What's the remedy?  Closely tied to the procedural issue is what remedy a court could grant if a violation were found.  No doubt, investigative targets would want the investigation enjoined, or an indictment dismissed.  But where would a court get its authority to do that?  The language of Senator Specter's proposal says nothing about this crucial issue.  The Supreme Court has restricted the supervisory power of the courts to redress prosecutorial misconduct by dismissing indictments, and stopping a criminal investigation may be extreme if an indictment has not issued, especially if it ends up protecting culpable individuals.  The Court in U.S. v. Williams, 504 U.S. 36 (1992), acknowledged that supervisory power could be used to dismiss an indictment for a violation of a clear statutory or constitutional right, so this proposal might grant a court that authority.  That said, is dismissal of an indictment proper if a corporation's employees engaged in wrongdoing and the prosecutors sought a waiver of the privilege?  Congress may want to be a bit more clear on what happens if there is a violation, and whether any remedy would extend to individuals who are not the privilege holder, such as an employee.  Again, the Rule 6(e)(7) contempt model of a contempt proceeding might be a workable approach, so that the underlying investigation or prosecution is unaffected by the prosecutorial misconduct.
  4. Will this legislation encourage corporations to act unscrupulously?  The legislative prohibition may create an unintended incentive for a corporation -- or more particularly its senior executives -- to try to keep lower-level employees from cooperating if there is no downside to doing so.  While one would hope this never happens, imagine a corporation and its senior officers are being investigated for a criminal violation, and the company tells its employees that any of them who cooperate with the government will not have their attorney's fees paid by the company, but if they refuse to cooperate then all their fees will be paid and the company will not waive the privilege or work product protection.  Even worse, it tells them that if called to testify before a grand jury they should assert their Fifth Amendment privilege and refuse to testify.  Could the government take that conduct into consideration in deciding whether to prosecute the company?  The bill's language is categorical that the government cannot "condition a civil or criminal charging decision" on the issue of fee payments, privilege waivers, joint defense agreements, information sharing, and retaining uncooperative employees.  Of course, the conduct by the senior executives might be an obstruction of justice, but the discussions on attorney's fee payments and cooperation may be protected by a joint defense agreement, and the government could not seek a waiver to learn about the discussion.  The legislation could produce a "beware what you wish for" response because it could make prosecutors more reluctant to charge an organization, so the government will charge individual officers more frequently, even in close cases if there's any suspicion of executive stonewalling.  This raises the "criminalization of agency costs" issue that has been discussed by some.
  5. Could there be a constitutional problem? I won't pretend to be an expert on constitutional law, particularly separation of powers questions, but this legislation strikes me as unique in having the Legislative Branch direct the Executive Branch in the exercise of its authority to decide who to prosecute on the basis of investigatory considerations.  While courts have imposed limits on prosecutors regarding charging decisions based on protected categories like race and sex, the legislature's role is to define the crimes and then leave it to the executive to enforce the law.  Here, the legislation tells prosecutors what they may not consider in making a charging decision, even if the conduct might have probative weight (e.g. conditioning payment of attorney's fees on not cooperating) regarding corporate criminality.  Courts have been quite reluctant to second-guess prosecutorial charging decisions absent strong proof of an impermissible motive, and there could be a constitutional issue raised by the legislation.

I've gone on way to long, but these are some of the issues I would like to see explored if the next Congress is going to pursue Senator Specter's proposal.  If the goal of the legislation is to bail corporation's out of criminal prosecutions, then the bill may not be the best idea.  If it is a serious effort to protect the privilege and not simply insulate organizations from civil and criminal liability, then Congress should address not only how best to go about doing that, but also what happens if there is a violation, and how to keep corporate executives from perhaps misusing the protections Congress may afford companies. (ph)

December 9, 2006 in Defense Counsel, Privileges, Statutes | Permalink | Comments (1) | TrackBack (0)

Friday, December 8, 2006

Wesley Snipes Surrenders on Tax Charge

Action movie star Wesley Snipes surrendered at the federal courthouse in Ocala, Florida, on tax fraud charges filed against him in October.  Snipes has been in Namibia filming a movie, and was released on $1 million bail and allowed to return there to finish the shoot.  Snipes' decision to return to the U.S. contrasts with that of another defendant residing in Namibia, Kobi Alexander, who is fighting extradition on securities fraud charges related to options-timing at Comverse Technology.  According to an AP story (here), Snipes must return to the U.S. by January 10, 2007, at the latest.  (ph)

December 8, 2006 in Prosecutions, Tax | Permalink | Comments (0) | TrackBack (0)